Key Points of TSMC's Q2 Earnings Call
TSMC will hold its second-quarter earnings conference on July 16, 2026, at 14:00 Taiwan time, entering a silent period from July 6 to 15. As the world's largest semiconductor foundry, TSMC connects mobile chip clients like Apple and Qualcomm on one side, and AI accelerators, cloud custom chips, and high-performance computing (HPC) demand on the other. The Q2 report will directly verify three questions: whether AI orders remain strong, whether the 2nm ramp-up is progressing smoothly, and whether the gross margin near 66% can be sustained. Over the past year, AI demand has consistently boosted revenue, margins, and capital expenditure (CapEx). The market is now more concerned about whether the high growth from AI/HPC can continue to translate into high gross margins.
Q1 Results and Q2 Guidance: Can Gross Margin Hold Above 65%?
TSMC delivered a strong Q1 performance: USD revenue of $35.9 billion, gross margin of 66.2%, and operating margin of 58.1%. In New Taiwan dollar terms, Q1 revenue was NT$1.134103 trillion, net profit NT$572.480 billion, and EPS NT$22.08. Revenue grew 35.1% YoY, and net profit grew 58.3% YoY. Q2 guidance remains at a high range, with expected USD revenue of $39.0-$40.2 billion and gross margin of 65.5%-67.5%. On July 16, the market will look not only at whether revenue falls within the guided range but also whether gross margin can hold above 65%. Current valuations and earnings expectations are built on assumptions of strong AI/HPC demand, tight advanced node supply, and high capacity utilization.
Monthly revenue released in advance signals sustained demand: May 2026 revenue was NT$416.975 billion, up 30.1% YoY; cumulative January-May revenue was NT$1.961804 trillion, up 30.0% YoY. However, revenue growth does not always mean profit growth, as initial expansion of advanced nodes brings equipment investment, higher depreciation, and yield learning costs. The final market reaction will hinge on the actual Q2 gross margin and management's remarks on H2 margin trends.
AI/HPC Demand Driving Growth But Margin Pressure Remains
Morgan Stanley expects TSMC's Q2 gross margin to reach 67.4%, near the high end of the company's guidance. Management stated in the Q1 call that AI-related demand is 'extremely robust' and raised the 2026 USD revenue growth outlook to over 30%. The revenue structure reinforces this view: in Q1 2026, HPC accounted for 61% of revenue, and 7nm and below advanced nodes contributed 74% of wafer revenue. AI chips boost TSMC not only through order volume but also through higher value per chip — AI accelerators and cloud custom chips are larger and more complex, driving order value and keeping high-end capacity tight.
AI chip demand also pushes advanced packaging capacity, with CoWoS and SoIC remaining key expansion targets. As long as AI CapEx continues to grow, TSMC can maintain high capacity utilization and pricing power. However, TSMC typically does not disclose specific customer orders from Apple, Nvidia, or Qualcomm in its reports. Investors must gauge real demand from revenue mix, CapEx, monthly revenue, and management language. Therefore, in the July conference call, comments on AI/HPC demand, customer inventory, and H2 order cadence will be more important than quarterly figures alone.
2nm Ramp-Up and CapEx: Long-Term Moat or Short-Term Cost Burden?
TSMC has directed its full-year 2026 CapEx to the high end of the $52-$56 billion range, indicating that management sees a long-term capacity gap driven by AI/HPC demand. Higher CapEx helps secure future orders but also raises costs — advanced node fabs require massive investment, and equipment and facility depreciation will gradually hit the income statement. Overseas fabs in the US, Japan, and Germany diversify geopolitical risk but bring higher operating costs, management complexity, and supply chain costs. CapEx near the upper bound is a double-edged sword: when demand is strong, it represents TSMC widening its lead; when demand softens, it quickly converts into gross margin pressure.
2nm is an even more important variable for TSMC's mid-term outlook. Management stated that N2 entered high-volume production in Q4 2025, with multi-stage ramp-ups in Hsinchu and Kaohsiung, driven by smartphones and HPC/AI. The market is concerned not about whether 2nm has entered production, but how fast supply can expand, whether yields improve as planned, and whether initial customer demand can cover the high capital investment. TSMC expects N2/A16 capacity to ramp rapidly from 2026 to 2028, with a CAGR of about 70%. If the ramp goes smoothly, TSMC can continue to control advanced node supply and maintain pricing power. If yields, equipment delivery, or cost pressures exceed expectations, gross margins could suffer even as revenue grows.
Market Focus: H2 Outlook and Risk Factors
The July 16 earnings call is not only about whether TSMC meets Q2 guidance. More critically, management will describe the H2 outlook for AI/HPC demand, advanced packaging capacity, 2nm ramp progress, CapEx plans, and gross margin trends. If TSMC maintains a strong demand outlook while keeping gross margin within the 65.5%-67.5% guided range, market confidence in the AI hardware chain will be reinforced. If the company sends more cautious signals about customer orders, inventory, or cost pressure, investors will reassess how long the high growth in the AI supply chain can last. TSMC's current strength comes from AI/HPC demand, tight advanced node supply, and high CapEx expansion. The risks lie on the same chain: demand, pricing, yields, depreciation, and overseas execution — if any link falls short, the near-66% gross margin will be the first to be tested.